How to calculate customer lifetime value
- Choose Subscription for monthly plans (software, memberships, boxes) or Repeat purchases for shops and services where customers come back.
- Enter average revenue and churn for subscriptions, or order value, orders per year and how many years customers stay for repeat buyers.
- Add your gross margin so the result reflects profit, not just revenue, and your customer acquisition cost (CAC) to see the LTV:CAC ratio and how long it takes to earn back what you paid for each customer.
What CLV tells you
Customer lifetime value (CLV or LTV) is the total gross profit you can expect from an average customer over the whole relationship. For a subscription, the average lifetime is 1 ÷ monthly churn: if 4% of customers cancel each month, the average customer stays 25 months, so a 40-a-month plan at 70% margin is worth 40 × 25 × 0.7 = 700. For repeat purchases, multiply order value by orders per year, years as a customer and margin.
CLV sets how much you can afford to spend to win a customer. A common rule of thumb is an LTV:CAC ratio of at least 3:1, with acquisition costs paid back within about 12 months. Below 1:1 you lose money on every new customer, however fast you grow. Small changes in churn have a large effect, which is why retention work often pays better than more advertising. The optional discount rate values future profit less than profit today, which is more conservative. These are averages; segment your customers by channel or plan for sharper decisions. Calculated in your browser.
What is a good LTV to CAC ratio?
3:1 or higher is widely seen as healthy. Much higher may mean you could invest more in growth.
Should CLV use revenue or profit?
Profit. Revenue-based LTV overstates what a customer is worth, especially with low margins.
How do I calculate churn rate?
Customers lost in a month divided by customers at the start of that month. Use our Churn Rate Calculator.